Correcting R&D Claims – is HMRC’s Disclosure Service right for you?
Correcting R&D Claims – is HMRC’s Disclosure Service right for you?
On 31 December 2024, HMRC launched its R&D Disclosure Service to help businesses voluntarily correct inaccuracies in their R&D claims. Although HMRC wants companies to put right errors in R&D claims, it has made clear that this new service won’t be right for all situations, so read on to check if it is right for your company.
Why is this happening?
HMRC has significantly increased scrutiny of R&D Tax Credit claims in recent years. For example, they have introduced new claim procedures and increased the number of compliance checks – although HMRC’s limited resources often mean that compliance checks take a long time to resolve. The R&D Disclosure Service aims to allow taxpayers to take control of the process by proactively disclosing certain errors in their claims.
What is the R&D Disclosure Service?
The R&D Disclosure Service is an online platform that allows companies to disclose errors if:
- They have claimed too much in R&D tax credits
- Cannot amend their corporation tax return, and
- Need to pay additional corporation tax or repay overpaid tax credits.
However, it should only be used in the right circumstances.
Who should use the R&D Disclosure Service?
The service is for companies that are out of time to amend their R&D claims via their corporation tax returns, but who have made errors despite taking reasonable care, or out of carelessness. For example, if you realise that you have overclaimed on some R&D costs in the past, you can use it to put matters right and repay overclaimed tax credits.
If you are going to use the disclosure service, it is essential that you identify everything that is wrong with your past claims: making further errors in a disclosure to HMRC can be an expensive mistake. So if you are not 100% sure, it’s best to get expert help.
Who should not use the Service?
The R&D Disclosure Service is not suitable for you if:
- Deliberate errors arose in your company’s R&D claims: Here, ‘deliberate behaviour’ is where a taxpayer has knowingly supplied HMRC with a document containing an error. Such companies should seek help to use the Contractual Disclosure Facility (CDF) under HMRC’s Code of Practice 9.
- Within time limit: Companies that are still within the time limit to amend their relevant corporation tax return to put the error right.
- No Corporation Tax to pay: If there is no Corporation Tax to pay and no tax credit to repay, companies should contact RD.Incentives@hmrc.gov.uk to explain the error in their R&D claim.
This new disclosure facility is solely for R&D issues. It is however, essential that any other non-R&D mistakes are rectified at the same time so that the company makes a full disclosure of all errors to minimise tax penalties. If this is the case, a different disclosure process should be used (see below).
How the R&D Disclosure Service works
To make a disclosure, companies or their authorised agents can submit an online form and upload calculations. The information required includes the company’s details, the HMRC customer compliance manager’s name (if relevant), the agent’s name who prepared the original claim, the accounting periods covered by the disclosure, and reasons for the inaccuracy. A formal settlement offer must also be submitted.
HMRC will provide a payment reference number within 15 days of receiving the disclosure. They will respond to the disclosure within 30 calendar days, either accepting it, requesting more information, or rejecting the offer. Companies must pay their liability within 30 days of submitting the disclosure. If HMRC rejects the disclosure, the company may need to provide more information and revise its calculations.
HMRC’s guidance states that if a business cannot pay in full, they have the option of requesting a time to pay arrangement. What instalment payments will be acceptable to HMRC will defend on the particular facts and circumstances.
No ‘notification’ period
Unlike other HMRC disclosure facilities (see below) the R&D Disclosure Service does not enable the taxpayer to notify HMRC of their intent to disclose before submitting the detailed disclosure – everything must be ready before you use it.
The lack of a pre-disclosure notification step could leave taxpayers exposed to penalties. This is because in the time that your business is preparing the paperwork and calculations to make a disclosure, HMRC could open a compliance check. Once a check is underway, any penalties that arise through subsequent disclosures are likely to be deemed as being ‘prompted’ - penalty percentages for prompted disclosures are higher than for unprompted disclosures.
Alternative options for putting things right
There are a number of different tax disclosure methods available and each has its own merits depending on the precise nature of the tax irregularity you want to correct. Our Tax Dispute Resolution experts can advise you on the best route for you which might include:
- Contractual Disclosure Facility (CDF): For cases involving deliberate behaviour the disclosure should be made under HMRC’s Code of Practice 9. This is the only facility providing protection from criminal prosecution for tax fraud or deliberate wrongdoing. Learn more about COP9.
- Worldwide Disclosure Facility (WDF): For issues that are offshore. Read more about the Worldwide Disclosure Facility.
- Digital Disclosure Service (DDS): For UK-based tax errors or other taxes such as inheritance tax or corporation tax.
- Customer Compliance Manager: If the company has one, they can write directly to them.
- Mid-Size Business Support Team: Contact HMRC’s mid-size business support team for assistance.
So, while the R&D Disclosure Service offers a streamlined way for companies to correct inaccuracies in their R&D claims, it may not be the most appropriate option for your company. It is essential to address all other tax mistakes at the same time – ensuring a full disclosure of all errors is made is the best way to limit the overall risk and costs to your business.
How we can help
We have a market leading team of Tax Dispute Resolution experts that specialise in dealing with all forms of HMRC compliance checks, enquiries and in supporting clients to make disclosures to HMRC.
We also have significant experience of dealing with and successfully closing HMRC compliance checks into R&D claims. In doing so we work closely with our R&D tax colleagues including specialist engineers and scientists who are frequently able to help demonstrate the eligibility of R&D claims and take a forensic approach to identifying qualifying costs. We can put your past claims through robust tests to identify both over and under claims of R&D tax credits.